Negosentro|For Fintech Startups – The 4 Hurdles They Will Likely Face|Financial technology (Fintech) simply refers to technological solutions that we are seeing moreand more within the financial services industry. We’ve all used fintech, be it through platformssuch as PayPal or Cash App—these consequently fall into the category of mobile wallets and/or payments.
Such technological solutions are by and large created by tech startup companies whichin turn, provide their fintech services to already established firms.
Particularly among young people, we are seeing numerous individuals utilizing a mobile banking app as their go-to financial solution. Fintech, make no mistake about it, is seriously disrupting the banking and finance sectors. There is a real opportunity for entrepreneurs to now get into aone-time untouchable space. However, there are some hurdles that a tech startup of this nature is bound to face…
Vested CEO Daniel P. Simon in his upcoming book, The Money Hackers: How a Group of Misfits Took on Wall Street and Changed Finance Forever, chronicles how fintech’s major players were forced to find ways to surmount major challenges in order to be successful. Ken Lin of Credit Karma, for instance: he almost had his tech startup shut down by credit bureaus. He had to get creative if he wanted to make his company work.
Below are the four key hurdles that every fintech startup must overcome in order to make a go of it:
1. The U.S. regulatory market
Without question, you must follow the rules of the road as laid out by regulators; this is integral for a fintech startup’s success. However, you have to approach it in a way that best fits your organization. For example, Renaud Laplanche opted to not try and go it alone when launching
Lending Club. He consistently interacted with and engaged regulators rather than working around them and just hoping for the best. The example of mobile-banking company N26 is also a good one as they partnered with regional banks in an effort to more efficiently obtain the necessary licensing.
2. Launching much too early
Perhaps you have been using your own money and working on your product for years, or maybe you’re intent on meeting self-imposed deadlines or are feeling the pressure from investors. Arbitrarily picking, and then sticking with a launch date regardless of your readiness is a major Mistake. especially in a highly regulated sector.
There are a ton of cloud-based tech products that allow creators the flexibility to make critical updates and adjustments after they’re out on the market—this, in turn, can make any tech startup a candidate for a premature launch. A huge mistake, and one to avoid. Not to mention, you should not start talking to media about your product/service before you’re ready. If you do have numerous adjustments to make this will only sow doubt and make them less receptive in the future.
Be open and honest with investors if they are putting pressure on you to launch. Chances are, they will thank you down the road. It is way better to push back your launch date then to go to market and end up in trouble.
3. Changing concept
As the founder of a fintech startup, you need to be aware that your business model can change. And you have to be prepared for this. Laplanche figured that he was creating a credit card for children, and as he did have some initial success, he was able to get the attention of hedge funds and other investors.
He thus pivoted from the original concept and focused on creating products for those investors. Had he not made this transition, Lending Club might not have received the needed capital which ultimately allowed him to think far bigger and consequently expand. You cannot afford to be too narrow-minded about what your platform or company can be. Renauld moved to accommodate a new audience and as a result found tremendous success.
4. The role of partnerships
If you intend to try and leverage fintech to disrupt an industry, you can definitely anticipate pushback. With Credit Karma, founder Ken Li approached the credit bureaus in an effort to provide credit data to its users. However, one of the bureaus came across an article spotlighting the fact that Credit Karma was giving away credit scores for free, and so they tried to terminate its contract with the company; they feared they might damage relationships with existing partners who otherwise charged consumers for credit scores.
Credit Karma was in trouble and looked to be shutting down. Lin though was able to convince the bureau to reverse its decision. The overall takeaway here is to be savvy—you may need to pivot. You may need to be confrontational at times or you might opt to take another approach. If you are disrupting an industry with your tech startup there will be reactions from established entities. Keep in mind, it’s usually better to have allies than enemies, as it takes a lot of work to get a fintech product up and running.